Gold & Silver Digest: 2/12/13
The Gold & Silver Digest contains headlines of stories that members of this group deem relevant and/or interesting to precious metals enthusiasts.
If you have articles to submit for the next digest, please email them to me by clicking here.
2/12/13 5:55 PM EST US close metals price quotes from Finviz
LONDON, Feb 12 (Reuters) – Gold clawed back from its lowest in over a month on Tuesday, as the dollar fell following a statement from the Group of Seven industrialised countries reaffirming commitment to market-determined exchange rates.
However the market still struggled to regain positive territory as investors concentrated on a brighter global economic picture. Gold also failed to reprise its safe-haven role after North Korea confirmed it had conducted an underground nuclear test.
Ron Paul spoke with Bloomberg television (see video in Commentary) and said that we are in a currency war and we have been for decades. He noted that governments have always competed against each other’s currencies even under Bretton Woods. It has always been a form or protectionism and will make people want to export more.
Dr. Paul said don’t blame countries like China and Japan just look at the debt the U.S. is buying. There will always be currency wars. The Bank of Japan claims it has to defend itself against deflation and decades of slow growth.
Ron Paul noted that the Bank of Japan’s yen devaluations will eventually lead to further price inflations that are to come. Investors and citizens will eventually reject the yen and switch to other currencies like dollars or Swiss francs. Then eventually people will move to hard assets altogether as they are losing confidence in paper assets.
There is much debate about the effect of currency wars on gold and its future direction. Currently, the fundamentals of gold are muddled. On the one hand, central banks continue to print lots of money, and some believe currency wars are imminent. On the other hand, inflation is stable, and the metals are under the control of the momentum crowd, which represents weak hands. Under such circumstances, it makes sense to turn to the long-term technical analysis for gold for guidance.
A picture is worth a thousand words. The chart linked to below shows the long-term technical analysis of gold.
HRH Queen Elizabeth II: “I saw all the Gold bars. Regrettably, not all of them belong to us.”
George Osborne, Chancellor of the Exchequer: “Some of them were sold, but we still have got some left.”
For the first time since George III in 1781, a British Monarch attended a British Government Cabinet meeting on the 13 December 2012, in accordance with Queen Elizabeth II’s wishes in her Diamond Jubilee year. She also visited the Bank of England vaults. The understanding being that she would not participate in the discussion. Being a Constitutional Monarch, the King or Queen does not interfere with affairs of government. Queen Elizabeth has been a tireless and selfless figurehead and ambassador for the UK and her discipline and integrity are respected throughout the world. So if she was going to break the rules and ask a controversial question, it was interesting that it was about gold.
A debate between those advocating for a fiat money supply and those advocating for a gold standard has been raging for nearly a century. It’s time to reframe this debate in order to highlight some of the intrinsic properties of gold that are germane to this polemic and to inform the discussion of using gold as the philosophical basis for intelligent and prudent monetary policy.
This much is clear: Each side in this debate seems to enjoy insulting the intelligence and wisdom of the other. Consider, for example, the point of view of H. Parker Willis, the first secretary of the Federal Reserve Board:
“Central banks will do wisely to lay aside their inexpert ventures in half-baked monetary theory, meretricious statistical measures of trade, and hasty grinding of the axes of speculative interests with their suggestion that by doing so they are achieving some sort of vague ‘stabilization’ that will, in the long run, be for the greater good.”
In August I wrote a short piece called, “Pretty Sure Bets.” In it I said that buying rhodium at $1080 was a pretty sure bet. Today that same rhodium is quoted at $1325. That’s a nice $245 move.
I also pointed out that the platinum/gold spread was the highest I had ever seen it with gold carrying a $227 premium over platinum and that platinum/gold spread was a pretty sure bet. Today, platinum is quoted at $1715 and gold at $1668, so now platinum has a premium of $47 over gold. That means the spread has moved $274 in favor of platinum.
A LOT OF TALK on the web right now says silver is significantly undervalued versus gold.
Many of these pundits and talking heads like to point to the historical relationship between gold and silver prices, sometimes known as the "ratio". People even comment as to this connection as far back as thousands of years ago. Let's take a quick look at this.
Silver, thousands of years ago, was originally thought of greater value than gold, both because it was relatively scarce in great civilizations such as the Egyptians, and because it was easier to work into useful materials. Both silver and gold have been used abundantly for ornamentation and as a thing of beauty in homes, temples and palaces. Then of course as jewelry their beauty was very much esteemed.
The newest “Thunder Road Report” appeared today. The author Ted Ferguson (associated to Seymour Pierce Equity Research) always succeeds in bringing an well researched message. In his latest edition, titled “Silver: right now (probably) the best asset in the world” he focuses on silver and its prospects.
This newest edition counts some 8 pages goes and the summary invites you to read the whole document:
For more than a century, the silver price has correlated most closely with a cycle based on the combination of two further statistically significant cycles in silver prices lasting 5.58 years and 31 years, respectively. The next peak in this combined cycle is forecast for July / August 2013, which would imply a new all-time high in the silver price in excess of US$50/oz (the current price is US$31.47/oz.). Having underperformed significantly from their most recent price relative peaks in 2011, the risk / reward trade-off for premier silver mining stocks, like Fresnillo (quoted in London) and Pan American Silver (North America) looks favourable.
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